If you need to refinance, a home equity loan lest you cash in on the value you have built up in your home. The amount of equity is the difference between what you owe on your mortgage and what your home is worth on the real estate market. This option for refinancing is really great for homeowners who have been paying on their mortgage for quite some time and have a significant amount of the principal of the loan repaid. With a home equity loan, you can usually get about 80% of the equity as a loan.
The money you get through a refinance home equity loan is yours to do whatever you like. If you want to make further improvements to your home, then you are building up even more equity. There are some lenders that will approve a home equity mortgage loan where you don’t have to make any payments as long as you still live there. When you sell the home you have to repay the loan in full, plus interest of course. If you die, then your estate is responsible for the repayment.
As with a mortgage, your home is the collateral when you refinance. Loan payments have to be made each month, which could mean you have two mortgage payments to make. You have to make sure that you can afford this before you jump into it and the lender will require you to have an excellent credit record. If you default on the payment for the home equity loan, you could lose everything you have worked so hard for.
Many homeowners use the option of refinance in a home equity loan to consolidate all their bills. Then they use the total of the payments they were making each month to make the payment for the loan. Most of the time, this amount is much less than the total of all the other payments, giving you cash to work with each month. The rate of interest on a home equity loan is much lower than a normal loan and in some cases the interest may be tax-deductible.
When you want to refinance, a home equity mortgage loan has two options for you to choose from. You can have a fixed-rate loan where you make fixed monthly payments each month for a specified term. You can also have an adjustable rate line of credit with a home equity loan. If you choose the fixed rate option because you want to be able to budget each month, once you pay the loan in full, you cannot get another home equity loan. This is a one time thing. However, with a home equity line of credit, you can use the money over and over.
When you repay the line of credit, you can borrow money on it as you need it. You don’t have to have it repaid in full to do this and can use it as you see fit. You only pay the interest each month on the outstanding principal and you can pay it off in full whenever you want.
Posts Tagged ‘Mortgage Payments’
Real Estate Investment: Home Equity Loans Versus Refinancing
December 18th, 2009There are many options for making use of your home equity value when thinking of building your property portfolio. These include loans such as home equity loans, refinancing your mortgage and many others. By far the most tested and used options are the two that we have highlighted. You have to carefully investigate these options and evaluate their benefits to you. Choose the option that is less stressful on your pocket and that offers you the best and easiest repayment terms when all factors are considered.
Home equity loans are loans that leave you with two loans to pay rather than one loan overall. They give you a separate loan on the home equity that you have available. They do not reduce the interest rates on your present mortgage nor do they reduce your mortgage payments. This means that you should be very careful that you can handle the additional burden. You also do not increase the length of your mortgage and are therefore obligated to repay the mortgage in the same time period as previous.
The option is yours to decide whether you can handle the burden of the two loans and the time frame. It is however not always the case that this is possible. It is often an easier option to free the equity in your home by refinancing your present mortgage and even possibly reducing the monthly repayments at the same time by giving you more time to pay. This may be the best option if you know that your budget will be tight.
The refinancing of the present mortgage that you have can even reap other benefits to you such as lower interest rates and of course the fact that you are able to get the cash for your start up into real estate investment and building out your property portfolio. With the right investment you will be able to handle the repayment of your mortgage in no time and you will be braced to succeed in the real estate race to riches.
It is important that you carefully assess your financial situation and determine whether you are financially able to repay the mortgage as it is your home that is being put at risk. Your decisions as to how to free up the equity in your home and refinance should be based on a clear understanding of the type of refinancing that will best accomplish your task without stretching you beyond your resources. You will be able to maintain your current lifestyle while progressing with your investment portfolio.
There are other refinancing options available on the market today that will accomplish the same goal but may or may not suit your requirements better. There is a means of freeing home equity known as cash out refinancing. This should also be considered in collaboration with home equity refinancing. Read on how to go about refinancing for your real estate investment, its benefits and the factors to consider when venturing into this type of transaction.
Using a Home Equity Loan to Invest
December 13th, 2009What is a home equity loan?
Home equity is a person’s financial stake in his or her home. A home equity loan allows you to borrow up to 125 percent of the appraised value of your home, less any existing mortgages. Consumers generally take out home equity loans for shorter periods than their original mortgages (five to 15 years versus 25 or 30).
Home equity loans have become increasingly popular in recent years. Low interest rates (typically higher than first mortgages, but not as high as other borrowing options) and the interest deduction are two reasons for this, but you should consult a tax advisor for the tax implications in your situation.
Lumps versus lines
There are two types of home equity loans: term (or closed-end) loans and lines of credit (open-end loans). The former is a one-time lump sum paid off over a predetermined time period, at a predetermined rate of interest. A home equity line of credit (HELOC) sets a maximum amount for the line and lets the borrower withdraw money up to that point, as he or she needs it. There are minimum requirements for paying back the principal — both in terms of time and amount — but the borrower can overpay (and then dip back in up to the maximum again). The interest rate on a HELOC is usually variable.
Is it wise to use a home equity loan to invest in securities?
Not necessarily. But, if you are financially stable, are not reliant on investment returns to cover your mortgage payments and are a knowledgeable investor, the home-equity gamble might be a way to secure low-interest money to use to invest in securities. Otherwise, it could be too much of a risk.
The risk is this: When you buy securities with mortgage money, the funds with which you’re investing are not your own. Mortgage-money investments that go sour take the collateral supporting the loan — the house — down with them. That’s a sad ending for the equity you spent your adult lifetime amassing. There are other options available if you want to borrow money to invest in stocks, and they don’t involve the risk of losing your home. Talk with your financial advisor to find out more.
Indeed, the NASD (the National Association of Securities Dealers), the world’s largest private-sector securities regulator, is so concerned with the practice that it is taking “enforcement actions” against brokerage firms that recommend this source of funds for consumers looking to invest.
If you’re still game, you need to look at the specifics on both sides of the transfer. For example, if the interest rate on your home equity loan is four percent, you’ll want to make sure the investment you’re moving to promises a return that’s at least a couple of points higher. If you’ve got your eye on growth stocks, remember that growth stocks offer no guarantee of growth. Government-insured programs, while not offering the same potential for returns, might be a safer bet.
Before making any investment decision, it’s wise to discuss the specifics of your own situation with a financial advisor.
